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Press release from Marketwire

Canacol Energy Ltd. Announces 73% Increase in Proved Reserves and Replaces 209% of Proved Reserves for Fiscal Year Ended June 30, 2011

Tuesday, September 27, 2011

Canacol Energy Ltd. Announces 73% Increase in Proved Reserves and Replaces 209% of Proved Reserves for Fiscal Year Ended June 30, 201106:30 EDT Tuesday, September 27, 2011CALGARY, ALBERTA--(Marketwire - Sept. 27, 2011) - Canacol Energy Ltd. ("Canacol" or the "Corporation") (TSX:CNE) (BVC:CNEC) is pleased to report its reserves for the fiscal year ended June 30, 2011 for its operated Rancho Hermoso and Entrerrios oil fields and its non-operated Capella heavy oil discovery in Colombia.Total corporate proved reserves ("1P") for the fiscal year ended June 30, 2011 increased 73% to 4.5 million barrels ("mmbls") from 2.6 mmbls for the fiscal year ended June 30, 2010, with a corresponding 1P reserve replacement of 209%*. In the same period, 1P pre-tax NPV-10 increased 207% from US $64.9 million to US $199.2 million. Total corporate proved plus probable reserves ("2P") increased to 7.9 mmbls for the fiscal year ended June 30, 2011. In the same period, 2P pre-tax NPV-10 increased to US $311.9 million.CORPORATE TOTAL Net After Royalty Reserves, Deemed Volumes and Pre-Tax NPV-10 Summaries 30-Jun-1130-Jun-10ReservesReserves Pre-TaxDeemed VolumesTotal Reserves Plus Deemed VolumesTotal Pre-TaxReservesTotal Pre-TaxVolumes in Mbbl and Pre-Tax NPV-10 in 000s of U.S. dollarsMbblNPV-10(US$ in 000s)MbblMbblNPV-10(US$ in 000s **)MbblNPV-10(US$ in 000s **)Total Proved (1P)4,513$134,4097845,297$199,2162,613$64,897Probable3,434$95,3012513,685$112,7284,262$81,524Total proved plus probable (2P)7,947$229,7101,0358,982$311,9446,875$146,421Possible5,137$142,8802465,383$158,7145,779$130,607Total proved plus probable plus possible (3P)13,084$372,5901,28114,365$470,65812,654$277,028The evaluations, effective June 30, 2011, were conducted internally with the assistance of the Corporation's independent reserve evaluator DeGolyer and MacNaughton ("D&M") and are in accordance with National Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities. The reserves are provided on a net after royalty basis in units of barrels of oil (bbl) using a forecast price deck in US dollars. The estimated values may or may not represent the fair market value of the reserve estimates.* Reserves replacement ratio: Ratio of reserve additions to production, as reported in financial statements during the fiscal year ended June 30, excluding acquisitions and dispositions on a proved basis. ** Net present valuations discounted at 10% include the values for both the Risk Service Contract and the net after royalty reserves. Charle Gamba, President and CEO of Canacol commented "I am pleased to report that the Corporation has significantly increased reserves and the corresponding value of those reserves, mainly through continued exploitation success in Colombia. The Corporation sees the potential to increase reserves further in Rancho Hermoso and Capella through more development drilling. The Corporation has also established a transformative conventional oil exploration position with interests in 12 exploration contracts covering 2.5 million net acres. The execution of our exploration programs for fiscal year 2012 has the potential to add significantly to our existing production and reserve base. As of June 30, 2011, The Corporation had approximately US$ 115 million in cash and remains fully funded through 2012."Rancho Hermoso & Entrerrios Oil FieldsThe Corporation operates two producing oil fields, Rancho Hermoso (100% gross working interest) and Entrerrios (60% gross working interest), located in the Llanos Basin of Colombia. Each field has two contracts governing the production. One contract, a Risk Service Contract, provides a tariff revenue for each barrel produced from the Mirador interval in the Rancho Hermoso field, and the remaining three contracts are production sharing type arrangements whereby the Corporation is entitled to an equity share of the volumes produced net of a royalty payment to the government. Rancho Hermoso Net After Royalty Reserves Summary Rancho Hermoso's net after royalty 2P reserves for fiscal year ended June 30, 2011 increased 88% to 2.5 mmbls from 1.3 mmbls for the fiscal year ended June 30, 2010.June 30, 2011June 30, 2010Reserves in MbblMbblMbblTotal proved reserves (1P)1,9211,099Probable reserves 543213Total proved plus probable reserves (2P)2,4641,312Possible reserves 2,228Total proved plus probable plus possible reserves (3P)4,6921,312The evaluations, effective June 30, 2011, were conducted internally with the assistance of the company's independent reserve evaluator DeGolyer and MacNaughton ("D&M") and are in accordance with National Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities. Rancho Hermoso Tariff Oil Summary Rancho Hermoso's proved plus probable tariff volumes for fiscal year ended June 30, 2011 increased 124% to 7.4 mmbls from 3.3 mmbls for the fiscal year ended June 30, 2010.For Rancho Hermoso's Mirador Risk Service Contract, the Corporation handles 100% of the gross volumes for a service fee. June 30, 2011June 30, 2010Tariff Gross Volumes in Mbbl MbblMbblProved tariff volumes 5,5823,046Probable tariff volumes 1,802254Total proved plus probable tariff volumes7,3843,300Possible tariff volumes 1,802Total proved plus probable plus possible tariff volumes9,1863,300The evaluations, effective June 30, 2011, were conducted internally with the assistance of the Corporation's independent reserve evaluator DeGolyer and MacNaughton ("D&M"). The Corporation does not have a direct interest in the oil or gas but the revenues realized from the Mirador Risk Service Contract are predicated on reserves defined under COGEH methodology and definitions. The revenue is equated to a deemed volume of the same type and quality of hydrocarbon.Rancho Hermoso Deemed Volume Summary Rancho Hermoso's contracted tariff volume and the deemed volume attributable to the Corporation's interest based on the deemed market price on an annualized basis at June 30, 2011.June 30, 2011Tariff and Deemed Volumes in Tariff Volume Deemed PriceDeemed Volume MbblMbbl$/bblMbblProved5,582$96.53784Proved plus probable7,384$96.851,036Total proved plus probable plus possible9,186$97.301,281The evaluations, effective June 30, 2011, were conducted internally with the assistance of the Corporation's independent reserve evaluator DeGolyer and MacNaughton ("D&M"). The Corporation does not have a direct interest in the oil or gas but the revenues realized from the Mirador Risk Service Contract are predicated on reserves defined under COGEH methodology and definitions. The revenue is equated to a deemed volume of the same type and quality of hydrocarbon. As of the fiscal year end June 30, 2010, the Corporation had not reported deemed volumes associated with the Mirador Risk Service Contract.RANCHO HERMOSO TOTALPre-Tax NPV-10 Summary for Net After Royalty Reserves and Deemed Volumes Total Rancho Hermoso proven plus probable pre-tax NPV-10 for the fiscal year ended June 30, 2011 increased 319% to US $214.5 million from US $51.2 million for the fiscal year ended June 30, 2010.Total Rancho Hermoso proved plus probable plus possible pre-tax NPV-10 for the fiscal year ended June 30, 2011 increased 475% to US $294.1 million from US $51.2 million for the fiscal year ended June 30, 2010.June 30, 2011June 30, 2010 Pre-Tax Pre-TaxIn 000s of U.S. dollars NPV-10(US $ 000s) NPV-10(US $ 000s)Proved$169,417$42,487Probable$45,056$8,679Total proved plus probable$214,473$51,166Possible$79,620$0Total proved plus probable plus possible$294,093$51,166The evaluations, effective June 30, 2011, were conducted internally with the assistance of the Corporation's independent reserve evaluator DeGolyer and MacNaughton ("D&M"). The Corporation does not have a direct interest in the oil or gas but the revenues realized from the Mirador Risk Service Contract are predicated on reserves defined under COGEH methodology and definitions. The revenue is equated to a deemed volume of the same type and quality of hydrocarbon. As of the fiscal year end June 30, 2010, the Corporation had not reported deemed volumes associated with the Mirador Risk Service Contract.114 bopd was hedged at a floor of US $55 and a ceiling of US $80.25 per barrel to the end of August 2011, 500 bopd was hedged at a floor of US $70 and a ceiling of US $100 per barrel to the end of August 2011, 500 bopd is hedged at a floor of US $70 and a ceiling of US $100 per barrel until October 2011, and 500 bopd is hedged at a floor of US $70 and a ceiling of US $100 per barrel until November 2011.The net after royalty reserve valuations were derived using a forecast price deck as follows:Year2011*20122013201420152016201720182019202020212022US$/bbl, WTI$99.00$99.20$99.36$99.49$99.58$101.58$103.61$105.68$107.79$109.95$112.15$114.39For the tariff production valuation, the Corporation receives an operating tariff from Ecopetrol S.A. for each gross produced barrel of oil. The average tariff price for fiscal year 2011 was US $13.76 per gross barrel, and was insensitive to West Texas Intermediate oil price fluctuation. Under an existing agreement with Ecopetrol, the tariff was US $13.89 per gross barrel from September 2010 until August 2011 and is presently US $17.56 per gross barrel for the duration of life of field. * For 6 monthsCapellaThe Corporation has a 10% gross working interest in the Capella heavy oil discovery in Colombia, located on the Ombu Exploration and Production Contract in the Caguan-Putumayo Basin. The contract was awarded to the operator under the new terms defined by the Agencia Nacional de Hidrocarburos, whereby production is subject to a sliding scale royalty payable to the government. Royalty is determined by various production and reserves thresholds, and varies from a low of 8% to a high of 23%. The royalty level for Capella production is discounted by 25% due to the heavy nature of the crude oil.CAPELLA TOTALNet After Royalty Reserves and Pre-Tax NPV-10 SummariesCapella's net after royalty 1P reserves for fiscal year ended June 30, 2011 increased 112% to 2.5 mmbls from 1.2 mmbls for the fiscal year ended June 30, 2010. In the same period, 1P pre-tax NPV-10 increased 66% from US $17.3 million to US $28.6 million.June 30,2011June 30, 2010Reserves in Mbbl and Pre-Tax NPV-10 in 000s of U.S. dollarsMbblPre-Tax NPV-10(000s)MbblPre-Tax NPV-10(000s)Total proved reserves (1P)2,521$28,6421,190$17,251Probable reserves2,889$67,5233,042$47,473Total proved plus probable reserves (2P)5,410$96,1654,232$64,724Possible reserves2,896$78,8675,309$117,598Total proved plus probable plus possible reserves (3P)8,306$175,0329,541$182,322The evaluations, effective June 30, 2011, were conducted internally with the assistance of the Corporation's independent reserve evaluator DeGolyer and MacNaughton ("D&M") and are in accordance with National Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities. The reserves are provided on a net after royalty basis in units of barrels of oil (bbl) using a forecast price deck in US dollars. The estimated values may or may not represent the fair market value of the reserve estimates.The net after royalty reserve valuations were derived using a forecast price deck as follows: Year2011*20122013201420152016201720182019202020212022US$/bbl, WTI$99.00$99.20$99.36$99.49$99.58$101.58$103.61$105.68$107.79$109.95$112.15$114.39* For 6 monthsReconcavo Basin, Brazil – Discontinued OperationsEffective June 30, 2011, the Corporation's non-operated 47.5% working interest in 5 producing oil fields located in the Reconcavo Basin were sold.The Corporation's has filed its reserves as of and for the year ended June 30, 2011 with Canadian securities regulatory authorities. These filings are available for review at http://www.sedar.com. Canacol Energy is an exploration and production corporation with operations in Colombia, Guyana, and Brazil. The Corporation's common stock trades on the Toronto Stock Exchange and the Colombia Stock Exchange under ticker symbol CNE and CNE.C, respectively.This press release contains certain forward-looking statements within the meaning of applicable securities law. Forward-looking statements are frequently characterized by words such as "plan", "expect", "project", "intend", "believe", "anticipate", "estimate" and other similar words, or statements that certain events or conditions "may" or "will" occur, including without limitation statements relating to estimated production rates from the Corporation's properties and intended work programs and associated timelines. Forward-looking statements are based on the opinions and estimates of management at the date the statements are made and are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking statements. The Corporation cannot assure that actual results will be consistent with these forward looking statements. They are made as of the date hereof and are subject to change and the Corporation assumes no obligation to revise or update them to reflect new circumstances, except as required by law. Prospective investors should not place undue reliance on forward looking statements. These factors include the inherent risks involved in the exploration for and development of crude oil and natural gas properties, the uncertainties involved in interpreting drilling results and other geological and geophysical data, fluctuating energy prices, the possibility of cost overruns or unanticipated costs or delays and other uncertainties associated with the oil and gas industry. Other risk factors could include risks associated with negotiating with foreign governments as well as country risk associated with conducting international activities, and other factors, many of which are beyond the control of the Corporation. Reserves replacement ratio: Ratio of reserve additions to production, as reported in financial statements during the fiscal year ended June 30, excluding acquisitions and dispositions on a proved basis.FOR FURTHER INFORMATION PLEASE CONTACT: Kevin FlickCanacol Energy Ltd.Vice President of Capital Markets & Investor Relations1-214-235-4798kflick@canacolenergy.comwww.canacolenergy.com